Archive for February, 2015

In Oscar week when you think of truly great film stars (Bergman, Olivier, Brando), not just the celebrities the glossy magazines salivate over, arguably their greatest skill is their ability to career reinvention. They escape the routine typecasting, which leaves some actors and actresses careers “beached” in the minds of their audience (Hugh Grant, Dudley Moore, Eddie Murphy). Much the same danger lurks in advisory or brokerage businesses with alarming consequences. Firms, particularly those with a strong brand earned in the “cut and thrust” of transactional deal making, inherently find that their clients form a visceral connection with their brand. That bond is the “glue” that creates loyal and “permanent” clients, management and employees. In so doing, maximising the value of the franchise.

Here is the rub, when those firms seek to reinvent themselves with higher-margin, higher value advisory services, particularly around strategic not tactical issues (growth and expansion), they often come across resistance in two forms, personal and business:

Personal

1. Buyer’s Self-Worth – the cherished transactional buyer within a key client thinks they “own” the relationship with the advisory firm and its’ key people. They are reluctant to promote an advisory firm’s expertise (strategic), in areas outside their own expertise and experience (tactical). They “fear” that in making the introduction to the “strategic” buyer or worse,the results that arise from the relationship may reflect negatively on their own judgement, repute and reward. While they may respect and like their adviser, they don’t see clearly what’s in it for them (financial gain, increased repute, future career opportunities etc.).

2. Adviser’s Self-Worth – the key point person in the advisory firm is reluctant to promote his or her colleagues strategic expertise (no trust). There is a perceived and sometimes actual “fear” (risk of destabilising or destroying the transactional relationship). There is no personal non-monetary (promotion, repute) or monetary incentive to do so. Indeed, the relationship is akin to the adviser’s “pension”, why put it at risk for little or no visible benefit?

Business

3. Client Credibility – the advisory firm’s brand attributes and specialised transactional expertise are etched in the mind of the transactional buyer and their peers. Their key people are less well known or unfamiliar with the buyer(s) of strategic expertise. They might not be seen as “peer” of the transactional buyer. Finally, there may be perceived or actual conflicts with the firm’s transactional work.

4. Adviser Credibility – the leadership of the advisory firm don’t see themselves as “peers” of the strategic buyer or other strategic advisers, sometimes with good reason (don’t hang out with the strategic crowd). Their beliefs inform the behaviour and attitudes of their subordinates. When pressured by the client to include strategic expertise in the client offering, the transactional advisers use leverage to throw strategic expertise in for “free” and fear pushing back (loss of a key transactional client relationship). They don’t actively promote the expertise to clients and new prospects, rather it is “a bunch of guys with MBAs sitting in expensive offices at the end of the corridor, who never seem to make us any money”.

Leaders have three options: accept the “status quo”, circumnavigate it or blow right throw it. First, let’s take a step back and answer some essential questions that will enable us to find the shortest, quickest path to our goal:

1. Why are we intent on reinventing our firm in this direction (future health and well-being of the firm)?

2. What is the ideal result we want to accomplish (stronger brand, happier clients, more valuable firm)?

4. What options can we create that meet this goal (hire in qualified expertise; leverage new strategic alliances with external experts; create new value propositions; new strategic products and services for existing transactional clients and strategic prospects; create new strategic intellectual property; build and lead new communities)?

5. What perceived, actual or catastrophic risks are attached to each of these options?

6. What preventative or contingent action could we apply to avoid or evade these risks?

7. How do the risks and rewards of each option stack up?

8. What is the firm’s propensity to take risk in relation to reward?

Armed with this knowledge, the advisory firm’s leadership can make wise decisions consistent with the firm’s strategic direction. Firms such as IBM, Blackstone, EY and others have successfully created, built, leveraged and exited strategic advisory businesses as their strategic direction has evolved.

In my experience, too often leaders in advisory firms fail to apply this level of rigour and focus. Their aspirations to re-invent or recast the firm’s value proposition are just that aspirations that never become a reality. Powerful voices within the advisory firm project biases that has little do with what is in the firm or its’ clients’ best interests (ego, self-serving). The best laid plans sit in three ring binders, blown off course by a leaders who absent themselves from leading the process of change. Yet reinvent, we must constantly do if we are to increase our learning, attract smarter employees and reduce the level of uncertainty and competitive threats to our firm’s future.

Want to find the next Alibaba? Here is an interview with me that appeared on silliconvalley.com addressing the future of innovation in China, changes at China’s “Third Board” (NEEQ) and why local and international investors, entrepreneurs and executives should stand up and take note.

The excitement of growing businesses in new markets is the richness and diversity of the life experiences.

St. Moritz, Switzerland this coming weekend hosts the climax of one of the truly unique and compelling sights, The White Turf Festival. A stunning 2.5 hour train ride from the heart of Zurich for three Sundays in February, the Engadine Valley is host to a seductive cocktail of bravery, extravagant wealth and luxury. Flat and trotting races are complemented by skijoring, six men “water skiing” behind racehorses and travelling at upto 30 MPH.

Most of all there is exceptional people watching…. One of my earliest memories is a Cartier cocktail party with three early 50’s ladies whose facial expression while attempting to nibble on a canape resembled a guppy fish. The cosmetic surgeon had clearly left nothing to chance. Then there was the debonnaire sun-kissed German who arrived with his dog attached to his stripped Charvet tie, proclaiming how he had left the dog’s lead in the nightspot, Dracula after a heavy night’s partying!

Yet amongst the exotic Russians, mildly eccentric European aristos and the odd Al Thani there is a surprisingly warm and inclusive experience for the open-minded visitor…. Of course no trip to St Moritz is complete without a visit to “The Club” and the 7:30AM novice run down the bone-shaking Cresta Run. For the more genteel, the towns and villages in the enchanting valley provide a seductive backdrop of equisite scenery, beautiful walks and fabulous food heavily influenced by the proximity to the Italian border. To pass off this experience as a ringside seat in a rich playground, is to miss a truly one-of-a-kind experience.

There is a scene in the 1973 film “The Sting” where Robert Redford’s character, Johnny Hooker an aspiring con artist keen to ingratiate himself with the seasoned pro, Henry Gondorff (Paul Newman). Redford utters the line “”Luther said I could learn from you. I already know how to drink.” I am not equating today’s reinsurance business directly with the 1930’s underworld but for any current or future participant that is an attribute sure to draw a rueful smile in a hyper-competitive market.

If you believe as I do that the future of re(insurers) and intermediaries is dependent on the wisdom of line managers to consistently apply knowledge and great judgement to organisational issues in alignment with the firm’s strategic vision, you would be wise to think about three critical issues:

1. Profitable growth mindset: this is a philosophical issue, you cannot have profitable growth if your line managers visibly don’t have the right mindset. Ask yourself, does our environment (leaders’ behaviour) actively encourage our line managers and employees to think big (ambition, prudent investment and risk tolerance, innovation, new standards of performance) or minimise risk (fear of failure, conserve cash, problem-solving, deflect responsibility)? On a personal level, are we constantly and consistently investing in their self-worth (acquiring new skills)? In volatile times, the future of businesses is largely determined by the number of managers and employees with high levels of self-esteem, not the deepest pockets. There are plenty of examples over the last three decades of brokers (Pat Ryan, Graham Chilton) and re/insurers (Brian Duperreault, Bob Clements) who have swept past their competition for these exact same reasons. Why should this decade be any different?

2. Brand Power: Let’s keep it simple, whether you are an underwriter, broker, MGA or any other professional services firm, you are really in the marketing business. Your brand is important to your future because it is a representation of your quality. You can build and nurture it yourself or let the competition or market define it for you by default. If you want to command a premium for your product or service you cannot be the 1500th person talking about the complexity of cyber risk underwriting or the transformative effect of alternative capital on traditional reinsurance. (Try the simplicity of cyber risk prevention or the transformative effective of traditional reinsurance on alternative capital). You need to stand out from the crowd (try a contrarian stance). Ask yourself is our brand(s) sufficiently memorable and powerful to:

Attract our ideal prospects over the next two years?

Weather the amount of uncertainty (future-proof) and the competitive threats (new business models) impacting the future of our business?

Allow us to command a “premium” price for the value delivered to clients (Hermès, Goldman Sachs, McKinsey) or must we offer a “premium” value (Tesco, Samsung, Delta) to justify the price our customers are willing to pay for your products and services?

Then,

What tweaks or dramatic changes must we make?

The current period of M&A may lessen the competitive threat from traditional players but it may be largely irrelevant if the new entrants are gorillas encroaching on the path to your strategic goals.

3. Diversification: a spread of risk is a fundamental insurance concept, yet in many firms the call for greater diversification often feels like a response to the fire alarm going off in the boardroom.Ask yourself, is your desire to diversify being made from a point of strength or weakness? Is it a response to competitor moves, invalid market assumptions (defensive, protect operating margins) or serendipity and planned growth (offensive, assume a distinct or market-leading position)? Is it a response to the quality of your employees and management or the amount of uncertainty and competitive threat facing your firm’s future? What hard evidence or strong anecdotal information do you possess (or can easily acquire) to demonstrate the positive impact diversification will have on your firm’s short- and long-term profitable growth? Is it in the best interests of some or all of your firm’s key constituents (customers, shareholders, employees, business partners, regulators and so on)?

In tough trading conditions diversification is often the wrong call, businesses are better making their strengths more productive. Yet the demands of assertive investors chip away at what top management “know” to be the right course of action. This gets exacerbated when their key competitors make what appear to be “enlightened” moves to diversify when they have yet to be proven as a “wise” move (the decision stands the test of time).

The future is bright. The future is not in the stars or a glass of whiskey, it is within ourselves.

In a rush for innovation amongst mid and large-sized organisations, the boom in corporate venturing is one of the most visible signs of abundant capital chasing a paucity of great investments. For many sitting on the outside looking into the “hot” corporate venturing world, their view is obscured by the “steamed up” window pane. Sure, 25% of Fortune 500 companies are active in the corporate venturing arena. Daily business headlines in print and CNBC anchors, trail billion dollar valuations placed on “logo” investments (Uber, SpaceX) and a record number of exits for lucky investors (2014: 125). What is less understood by the “outsiders”, particularly corporate executives, is how do you properly quantify the value derived from a corporate venture.

Corporate Venturer’s good deal (“ROI”) =

TI (Tangible Improvements) X Annualised Period

+ II (Intangible Improvements) X Scope of Impact

+ PI (Peripheral Improvements)_____________

Proposed Investment

The “investment” is the cost of total capital and human resources deployed, interest, management time and energy invested in nurturing and supporting the portfolio management team, setting the Corporate’s vision, lining up key corporate supporters and paths of least resistance, changing the corporate culture, reinforcing corporate employees’ beliefs about the new strategic direction, corporate training, hiring or integrating new skills and technology, rewarding corporate employee behaviour, corporate employee education and communication.

So for example, an investment by an insurer in a transformative digital distribution business might be expected to result in increase sales, increase operating margin, lower acquisition costs from Year 3 to Year 7 (unlike M&A, CV’s rarely have a short-term impact) ; enhanced repute with clients and prospects, reduced uncertainty for investors and employees, reduced competitive threat and greater peace of mind for top management; strategic acquisition opportunities, faster new products to markets, repeat business with existing clients, geographic expansion and so on.

So for example if on a scale of “0” (risk free) to “-5” (Catastrophic risk), objectively, the Innovation Risk attached to the proposed investment is “-4,” (a black eye for the firm’s management, balance sheet and repute) and the Corporate Risk Tolerance is no greater than “-2” (modest hit to earnings, relationship with key constituents and repute), management would be advised to forego the opportunity.

Ease of Implementation:“high”, “moderate” or “low” fit with the Corporate’s operating model, speed of making changes, adapting customer relationships, access to appropriate capital, skills and technology, management time, organisational change and so on

Top priority given to “high” strategic fit and ease of implementation investments.

Corporate Venturing is very much the innovation tool “du jour”. Whether it is education technology, clean tech or fintech.

Getting started requires that you take a panoramic, not a a portrait view of the investment potential and the impact on the corporate organisation’s future. If you lack or cannot reasonably acquire the skills to make these judgments you shouldn’t be in the business of corporate venturing. It is not for the faint-hearted.

For those corporate organisations with the skills and volition to commit for the long haul, it is a powerful and potentially highly lucrative source of innovation and profit.

Bored by taking the “tour” around your industry’s annual events ever year, seeing the same faces speaking and pontificating on the future of the business? Try this “celebrity” game at market events to liven things up:

How have the fortunes of the leading and best supporting “actors” in the industry evolved in the past 12 months and how might they evolve in the next 36 months?

Can you spot who are

The “Sean Connerys”: the wealthy, sun-tanned and revered still rolled out to awards and benefits for their kudos

The “Leonardo DoCaprios”: feted for their enduring talent and image and still drawing a fashionable crowd

The “Philip Seymour Hoffmans”: feted for their heroic talent and presence but unlikely to live with the fame

The “Eddie Murphys”: revered for their “past” commercial prowess, now living in the Hills largely out of fashion save for the need to collect the odd cheque

Trust me there is a serious purpose to this, aside from the humour. Are you hanging out with the right people at the right time to impact your personal and professional success?

It is great reflecting on the wise cracks from Trading Places so long as you are not vesting your time and career prospects in people whose star has long since faded and to whom others suppose you are in the exact same company.

Here is a few reflections from the largest global casino, lottery, mobile and social gaming event, ICE Totally Gaming 2015, held in London this week:

With regulation on a par to the nuclear and energy sectors, can investors really be sure that the valuations for most gaming businesses today have adequately priced changes in regulatory risk?

Industry faces unparalleled level of intrusion. In the next 5 years a prominent gaming or lottery business will be a target of cyber terrorism from those whose values conflict with gaming and lottery operators.

When the overt marketing message is pushing girls in skimpy outfits with bad fake tans rather like a tired 197os porn film, does it really create a seductive rapport to your brand and its’ products and services or signal that your business has runs out of new ideas and excitement?

The sector doesn’t lack for people with abundant enthusiasm but it does lack abundant leadership prowess. Crossing that divide arguably biggest challenge.

When the immersive mobile and social gaming experience is so life-like why get on a plane or train to travel to Las Vegas or a London casino with the added cost of rooms, food and beverage and transport?

The future of gaming and lotteries is either (1) a fully immersive gaming offering or (2) fully immersive gamification

“Live” gaming experiences (casinos, sports betting, and so on) will close in even bigger numbers this year, when the consumer can find more excitement and value at home or in other pursuits.

The failure of major casino, sports betting and lottery operators to embrace innovation within their business will preface exponential growth in reactive/defensive investment in early-stage growth business this year.

Technology vendors in the sector face an increasing gulf between the “have’s” (knowledge, capital and scale) and the “have nots” predicating increased merger and acquisition activity in 2015. (IGT-GTech, Amaya and Scientific Games just the start).

Government agencies that are tethered to outdated legislation (Canada, US, Europe) are accelerating the irrelevance of regulated gaming and lottery products as the market diverges with changing customer preferences, demographics and so on. Expect greater friction and legal disputes in the next 12 months.

With few barriers to entry, the sector doesn’t lack for entrepreneurs wanting to create and build businesses but how many really “cash out” with a meaningful cheque? Expert a rise in incubators, accelerators and corporate venturing in the next 12-24 months.

While ICE like G2E has positioned itself as a “go to” trade show event, the learning opportunities (seminars and conferences) and the value derived from them are still no greater than 4/10. Organisers, sponsors and participants have a lot of work to do to attract a more impressive crowd. Expect the smarter exhibitors to fill this thought leadership “gap” in the next 12-24 months.

TheStreet’s Taiwan-based reporter, Ralph Jennings, interviews James about Dunkin’ Donuts market expansion goals in China, where exactly is the battleground and what must the winners to do build a sustainable business in a hyper-competitive market with wafer thin margins:

Yesterday’s Australian Open tennis final featured two players who had collectively won 9 majors.

The tale of the tape: Murray missed crucial opportunities in the first set tiebreaker at 4-2 to close out the set before bouncing back in the second set and building a 2-0 lead in the third set. In a dramatic few minutes the momentum swung sharply as Andy Murray’s resilience to Novak Djokovic’s consistent pressure forced a raft of errors. In the words of veteran tennis commentator, Pat Cash, Murray had a “meltdown, he gave up the fight”.

The subsequent media focus zeroed in on Murray’s collapse. That is how the media and many in business love to react. Find blame (individual), amplify the anguish (headlines), and confuse the “effects” (lack of resilience) with the “cause” (inability to convert and build momentum) because it is more visceral (suffering) and makes a better story.

How many times do you make or allow others to make the very same error when analysing defeat in a competitive tender, failing to convert a “hot” prospect into a client or establish your firm’s presence in a “hot” new market?

Do you seek to caste blame on others? (colleagues’ skills or priorities or the prospect’s people)?

Do you look at what you “omitted” to do well? (Specifically, the trigger behind why you didn’t get on the plane to visit the client, the time wasted between meetings perfecting the presentation, the lack of client “trust” with your proposed approach)?

If your focus is solely on improvement (3) and you do it well, you will “win” more than you “lose”. If your attention is on the first two (taking defeat personally or deflecting it), you are setting yourselves up for repeat failure. You control your future success. You control the level of resilience within your team and your own performance. It is YOUR choice, don’t let others distract you from your goal for a cheap headline.